I am The Markets

I am The Markets and I'm sick of people telling me how I feel

People keep saying I'm 'concerned' and 'confused'. It's not like I'm the one to blame for everything going tits up

• The Markets
• guardian.co.uk, Wednesday 20 June 2012 14.28 BST

'I'm not the one who created a whole array of inherently flawed financial instruments that no one properly understood.' Photograph: Andrea Comas/Reuters

Two quotes from yesterday's Guardian got me. "Markets have become increasingly concerned that the austerity programmes in the eurozone are causing a vicious circle of recession", and "Markets were confused by mixed messages from European capitals". I have only one word of reply. Bollocks. Did anyone phone me to ask how I, The Markets, was feeling about these subjects? Did they hell?

So let me get things straight. I am not in the slightest bit concerned about the austerity programmes in the eurozone. I am entirely indifferent to whether Greece and Spain get bailed out, go bankrupt or both. Just as I'm not at all bothered if Germany gets any of its money back.

I existed long before someone invented the eurozone and I will be around long after it has ceased to exist. I'm not in the caring business. I'm a trader. Someone has something they want to sell, someone has something they want to buy. End of. Whether people are flogging something of value or billions of pounds of worthless debt is entirely irrelevant to me. I'm just a mechanism for other people's greed and inefficiency. Neither am I in any way confused. Quite the opposite. I see everything with a steely-eyed clarity. The confusion is all yours.

But while we're on the subject of me, let me tell you how I really am feeling. As you might have gathered, I am pretty damned pissed off. I am sick and tired of everyone making judgments about my emotional state of mind without making any effort to talk to me, think sensibly about me or hack my phone. It's both lazy and insulting, but I've rather got used to it as it goes with the territory. What annoys me most is the way all this talk of me being concerned and confused makes it sounds like I'm implicated in the business of everything going tits up.

I will not be the fall guy. I have done nothing wrong. I am merely the blank canvas for other people's incompetence. I'm not the one who created a whole array of inherently flawed financial instruments that no one properly understood. I'm not the idiot who decided property prices were going to go up for ever and ever and that every country could max out its credit card. I'm not the out-of-my-depth chancellor of the exchequer trying to convince both myself and the country that I have the situation in hand and that I know what I'm doing.

None of that is anything to do with me. If anyone had wanted to set up a more straightforward and fairer market, I would have been OK with that. So, a final word to the wise. Remember who the real culprits are. It's they who are concerned and confused. Though not on your behalf. What they are concerned and confused about is how to get you to pay for the decisions they shouldn't have made in the first place.

As told to John Crace

The Greed Game

Europe will thrive. But we could be doomed to a life on the fringes

There is a Little England-ism that would have us leave the EU fold. It would be a disaster

• 
• • Will Hutton
  • The Observer, Sunday 10 June 2012
  •  

Santander: familiar on our high streets and part of the Spanish banking system that needs bailing out Photograph: Kumar Sriskandan / Alamy/Alamy

Taxi drivers and eminent commentators are agreed. The euro is an unmitigated disaster. It should never have been launched. Europe's elites over-reached themselves, locking the proud peoples of Europe in a disastrous straitjacket without any democratic mandate or ongoing accountability. This is payback time. Its collapse won't be pleasant, but the sooner the whole experiment is ended and Europe becomes no more than a loose association of free-trading nations with freely floating exchange rates the better. Eurosceptics have been vindicated.

This has become a settled British media and political consensus and now hardly seems the moment to challenge it. After all, Spain needs a massive bailout of its tottering banking system, including Santander, so familiar on every British high street, before the Greek election next Sunday. This appears to have been agreed yesterday. If Greece were to leave the euro before the bailout is complete, the bank run would overwhelm Spain and spread elsewhere. The EU and the IMF have only days to avoid a calamity. Southern Europe would confront run-away inflation and slump.
Nobody knows what will happen. Now Spain has got its bailout, Germany will agree to a fully fledged European banking union before the end of June, in which all eurozone countries guarantee each other's bank deposits and bank debt, agree common banking supervision and joint means to ensure every eurozone bank has sufficient capital. This should cut the poisonous link between the banking crisis and the public debt crisis. I also bet that the next Greek government will cut a deal to allow it to stay in the euro with less austerity.

In addition, a combination of ultra-cheap money and big infrastructure spending, again agreed reluctantly by Germany, across the continent will start to lift the European economy. The EU will have muddled through and the system held, because in the end the costs of break-up or for any one country exiting were just too prohibitive.

But the situation is dangerously volatile and the Germans may be too slow to act. It may be that we face months of bank runs and pandemonium and that the euro is reduced in essence to a north European euro bloc, including France and Germany but not most of southern Europe. But the big point is that one way or another the euro will have survived in some form because the member countries will have pulled together. And what will remain will be immeasurably stronger and more integrated – a euro area with a banking union, common governance of fiscal policy and political structures to match. Not a federal superstate but a new amalgam of nation states within a new international architecture – and with a newly forged European identity.

One of the byproducts of the crisis is that every European has become aware of the continent's interdependence. What happens in Greece, Spain, Ireland, France or Germany affects everyone else. Like it or not, we have to co-exist. In which case, this becomes a moment of existential choice for Britain. Eurozone members are not only fighting for the euro because the costs of collapse are so awesome. Europe must have a monetary order to underpin its ambitions to be a single market.

Devaluation, touted as a panacea across the British economic and political spectrum, certainly works for an individual country if it can devalue against others that hold their currencies stable. But as Keynes argued so effectively, if devaluation becomes the default policy for the entire system – the temptation in a world of floating exchange rates – then the consequence is disaster. It is an invitation for everyone to engage in beggar-my-neighbour economic policies by trying to rig their currency to boost their exports and minimise their imports, just as China has been doing for 30 years. A single market needs an accompanying monetary order – a heartland Keynesian proposition. This is not a doctrine of euro elites. It is how a single market can be made to work for all its peoples.

Which is why post-crisis Europe will be so tough for Britain. The EU that survives with its euro will be the centre of the European order. It will set interest rates and fiscal policy that will become the benchmark for every other European country. It will be the biggest and most desirable market in Europe and it will set the rules for how trade is conducted within its jurisdiction. Already it is happening. Senior ministers and officials have recognised that Britain had to agree to the banking union – with incalculable consequences for the City – but could do little or nothing to shape it. Financial regulation will be organised in Brussels for the benefit of euro member states. If we don't like, we can lump it. It will be across the board, from economics to climate change.

There is general delight that we are not part of this emerging superstate – a language that misrepresents what Europe is becoming. A referendum will cement our detachment or even lead to exit. Sceptics say the model for us to follow is Switzerland. The truth is that we would be a sort of Greater Guernsey, suffering an accelerated economic rundown. We will proudly float the pound, despite evidence that what floating means in practice – for a country with a huge international financial sector such as ours that sucks in capital from abroad – is systemic overvaluation and the evisceration of our traded goods sector: an economic doomsday machine.

Our foreign-owned car industry, dependent upon exports to the EU single market, will gradually migrate back to Europe or low-cost Asia. On a range of key strategic interests – finance, agriculture, fishing, transport, energy, IT and data security – benchmark policy will be made in Brussels, Paris and Berlin. They will have brought the EU through the crisis; their debts will be to each other, not us.

For the British Eurosceptic none of this counts. The vision is of endless austerity, prioritising deficit reduction above all else and evisceration of the social contract at home, and a refusal to recognise interdependence abroad or that there is any need constructively to create rules and an international order, especially in Europe. We should all resolutely tighten our belts and export our unemployment to others in a world of floating exchange rates and nonexistent international rules. It is a doctrine of arid meanness and nationalistic jingoism, an appropriate editorial line for populist centre-right newspapers, but nonsensical for a state with real interests to protect and advance. Britain stood aside from the euro crisis. It will stand even more aside from what follows, leaving us not just economically diminished but culturally shrunken.

Kerala plants encyclopedia

Minu Ittiype in Outlook India

One would be forgiven for mistaking Hortus Malabaricus to be a treatise on exotic plants from the Garden of Eden instead of the Garden of Malabar. For author Hendrik Adriaan van Rheede tot Drakenstein’s (then governor of Dutch Malabar, 1670-77) prose on his many journeys into the dense forests of Malabar (in present day Kerala) is almost as lush as the vegetation. Indeed, in one section he describes that he saw such a marvellous variety of flora that it was difficult to find two trees of the same kind in the same forest.

In a flourish of similes, he likens a tree adorned with green creepers to a magnificent palace. (Hardly the stuff one expects in a preface to a plant encyclopedia.) What astonished him no less was how the natives would pick up a few leaves, crush them to use as a balm or eat them to relieve themselves of some ailment.

The secrets of the leaves, roots, berries etc and their effects on the human body were common knowledge in Malabar in the 17th century, passed down orally from one generation to the next. Rheede was intent on documenting this vast trove of traditional knowledge for his fellow Europeans and proceeded to oversee the scientific description and paintings of the medicinal uses of 742 species of flora of Malabar. It was a herculean task which took him 30 years to complete. As governor, he employed 25 experts for the project, including physicians, botanists, painters, engravers, translators and a legion of 200 supporting staff to gather the plants. The Raja of Cochin and the Zamorin of Calicut readily lent their support. The period was not without political intrigue and in between Rheede found himself posted to Batavia in the middle of the project. But he remained ardently faithful to it. The 12 volumes of Hortus were published in Amsterdam between 1678 and 1693.

For over 300 years the Hortus volumes remained in relative obscurity due to a linguistic barrier: it was written in Old Latin and there was none well versed both in Old Latin and the plant kingdom to decipher it. In 1968, K.S. Manilal, a botany scholar and taxonomist, finally undertook the arduous task of studying Latin for 12 years, collected over 400 species of the mentioned plants and decoded Hortus. The project took 35 years of his life, but an English translation was published in 2003 (published by Kerala University) with a Malayalam edition coming out in 2008.

A comprehensive analysis of the Hortus also throws up some uncomfortable questions, some of which have already got the state’s intelligentsia talking. Like the case of the Hortus’s main contributor, a hereditary Ezhava vaidyan (physician) named Itty Achuthan, who was at the time forbidden from using the official written form of Malayalam, vattezhuthu, because he was not from the upper caste. His certificate in kolezhuthu, published in the Hortus, is a testament to this though, ironically, he was the chief protagonist in the documentation. So Hortus, besides documenting the flora, is also a subverted commentary on the culture, linguistics and social structure of the period. The record shows that initially three Saraswat Brahmins—Ranga Bhatt, Vinayak Pandit and Appu Bhatt—gymnosophists well versed in the classic medical texts, were initially employed to assist in identifying the plants. But when Van Rheede found that the Brahmins relied on their servants for physical verification of the plants he found Itty Achuthan far more invaluable. (In a sense, through the encyclopaedia he created, for the first time, an unimaginable inter-caste collaboration.) Achuthan, a descendant of Kollatt vaidyans, had inherited certain ancient palm leaf manuscripts which set out in detail the medicinal use of various plants. During his time, he was considered the most knowledgeable man in the field.

Commemorating the 333rd year of the Hortus, historians now believe it is the only authentic source of the ancient ethno-medical knowledge of Kerala, pre-dating even Ayurveda. As Dr B. Ekbal, former Kerala University V-C, puts it, “It was a decentralised medical practice that was Dravidian and predated ayurveda. Almost like an internal colonisation, later Ayurvedic practitioners appropriated this knowledge.” Today’s Ayurveda doctors are not too sure about this theory, saying their system is codified and argue that the medicinal properties described in Hortus are based mostly on folklore. Dr K. Anilkumar, executive director of Kerala Ayurveda Ltd, says, “We need to study Hortus to ascertain its efficacy. Like it’s mentioned that the bark of the coconut tree can be used to cure liver diseases. We’ll need research to see if there’s any truth to it.”

Kerala’s traditional knowledge of the curative powers of plants has eroded over the years but with the translation of Hortus an intangible heritage has once again become accessible. Some of the plants mentioned have become extinct, others unidentifiable. Even the health of the forests has declined, with trees now reduced to pygmies: the biggest kokum or kodampuli tree of today would at most fill a man’s armspan today but the book has instances of a similar tree’s girth “filling the embrace of two men”. Hortus is a repository of medical treasures as well as insights: who knew the oil of the common brinjal taken with opium has the potent effect of poison?

Risk models must be torn up, says Bank of England's Haldane

Financial risk models that underpin market behaviour, economic theory and bank regulation dangerously underestimate the threat to taxpayers and must be completely redrawn to prevent a repeat of the financial crisis, a leading policymaker has warned.
 

The Bank of England's Andrew Haldane has called for economists to re-think what they mean by "normal" 

 

By Philip Aldrick, Economics Editor

11:46AM BST 08 Jun 2012

57 Comments

 

Andrew Haldane, executive director for financial stability at the Bank of England, said the crisis provided compelling proof that “catastrophe risk” has been totally mis-priced. “That was a key fault-line during the crisis and, as recent experience attests, remains a key fault-line today,” he said in a paper at the University of Edinburgh Business School.

If taxpayers are to be protected in future, financial regulators must put “in place robust fail-safes to stop chaos emerging”, such as UK plans to ringfence banks’ retail operations or US proposals to ban casino-like proprietary trading.

Such “structural safeguards on worst-case outcomes” need to be accompanied by a massive increase in the “array of financial data available to regulators” provided by banks, he added. The extra information would allow regulators to build a “systemic risk map” not unlike a weather forecast that could “provide early warnings to enable defensive actions to be taken”.

“In a complex, uncertain environment, the only fail-safe way of protecting against systemic collapse is to act on the structure of the overall system, rather than the behaviour of each individual within it,” he said. “Until then, normal service is unlikely to resume.”

In a wide-ranging piece of research that sourced evidence not just from economics but from physics, biology and even behaviour on Twitter, Mr Haldane argued that the orthodox models used to measure risk overstate “normality” and underestimate the costs and probability of “catastrophe”.

To make the financial system safer, they need to be torn up, he said in the paper, co-authored with Bank economist Benjamin Nelson.

“The economics profession has for much of the 20th century been bewitched by normality. Real business cycle theory in economics and efficient markets theory in finance bear the tell-tale signs of this intellectual infatuation,” he said. “Over the past five years, the real world has behaved in ways which make a monkey of these theories.”

Changing the dangerous consensus “will require a fairly fundamental re-think of the foundations of modern-day economics, finance and econometrics”, Mr Haldane added.

Popular models that underpin banks’ risk management, such as Value-at-Risk (VaR), Black-Scholes and Vasicek, underprepare directors and regulators for a “fat tail”, or catastrophe event.

Citing studies of actuarial models used in insurance, Mr Haldane said “fat tails... would be expected to occur approximately once every 800 years for GDP and once every 64 years for equities”. “In reality, for GDP it appears to occur roughly once every century, for equities once every eight years.”

Regulatory risk measurements using the Vasicek model underestimate capital requirements by between 20pc and 85pc compared with a proper analysis of the past three centuries, he added. He cited JP Morgan’s recent $2bn trading loss as an example of the failure of VaR.

Changing the accepted wisdom on how to calculate risk is more important now than ever before, he added. “As the world becomes increasingly integrated – financially, economically, socially – interactions among the moving parts may make for potentially fatter tails. Catastrophe risk may be on the rise."

What will happen in the eurozone? Don't ask the experts, they don't have a clue

Simon English: The Independent

Thursday, 7 June 2012
Outlook Shares were up yesterday, theoretically on hope that the eurozone "crisis" will be
resolved. If they are down again today (that's the way to bet) does that mean we are
suddenly back in the mire?

Not really. One thing that happens when economic news gets interesting enough to bother
the front pages is that all sorts of unlikely people, TV presenters for example, suddenly claim
to care about the machinations of this curiosity called markets.

If they've fallen there must be a good reason why – we shall tell people what that reason is.
Sometimes markets are moved by genuine shifts in sentiment or genuine moves in perception
of what the future holds, but it is hard to see that's the case lately. They are moving on
noise and, moreover, on extremely low trading volumes.

The eurozone situation is so hard to call that traders, fund managers, bankers, economists
and the whole rest of the chasing pack of folk pretending they know what's going on from
one day to the next are left floundering even more than usual.
They might like to say "search me, I've no clue", but that could prove to be a seriously
career limiting stance.

Instead, they react to newsflow, rather than relying on the considered analysis on which
their jobs are supposedly based.

That daily tension between greed and fear has always been present and trading on what one
thinks will be in the news is far from a fresh approach, but the trend is lately exacerbated
since the possibilities are so far apart (either we're all doomed to the Third World War, or
we're heading to the end of the banking crisis and a fresh boom in prosperity).

So much so that Matthew Lynn of Strategy Economics argued the following in a paper
yesterday: "Conventional economics is now largely useless in trying to analyse the twists and
turns of the unfolding euro crisis: it has long since left behind any rational calculation of what
is good and bad for the Continent."

If he is right, most economists should pretty much just resign.

By Mr Lynn's telling, the present situation is best understood as a branch of game theory. "The markets take the euro-zone to the brink of collapse. Asset prices plunge. "As they peer over the edge of the abyss, the leaders... take fright and come up with whatever is necessary to keep the system from collapsing," he writes.

This has happened several times already and will keep happening, goes the theory.

He thinks this game of chicken is a trading opportunity, and suggests buying blue-chip
European stocks, French bonds, German property, gold and the Russian stock market. They'll
all go up after the Greek elections and the next big rescue deal, he says, at least for a while.
Even if you aren't in the mood to take such risks, his analysis might be a source of comfort.
His wider point seems to be that, since it is in no one's interests for an entire continent to go
bust, they shall keep figuring out a deal to prevent such a calamity.

Mr Lynn thinks that none of the bailouts can work in the long-term, but he might concede
that until tomorrow comes (it never has yet) we can all live forever, one day at a time.
In the short-term, there are money-making opportunities for those who ignore the gloomy
chat.

So don't look too closely at the stock market. Its daily gyrations really aren't telling you
anything that helpful.

s.english@independent.co.uk

The Bresnan effect

What makes some players talismans, in whose presence their teams play better than they would otherwise?

Ed Smith in Cricinfo

June 6, 2012

Are some players lucky charms? Or do we use luck as lazy short-hand slang to avoid the effort of identifying the set of skills that really sets them apart?

Tim Bresnan, England's bowling allrounder, now has a remarkable record in Test matches: played 13, won 13. So Bresnan will begin his 14th Test match this week yet to feel the pain of defeat in a white England jersey. Is that luck or skill?

Bresnan's role in those 13 consecutive victories has been mostly unflashy. Indeed, for many of those 13 selections, his place in the XI has been the most in jeopardy: the other ten players were picked first, with Bresnan battling it out for the final place. So far, the selectors have been proved right every time.

The unheralded rise of this understated Yorkshireman reminds me of "The No-Stats All-Star", a brilliant New York Times article by the American writer Michael Lewis. Fans of Lewis' iconic book Moneyball should read it immediately. Lewis' starting point is trying to understand how some players have an effect on a team that is not captured in their own statistical performance.

Lewis' subject is Shane Battier, a defensive player for the Houston Rockets. Battier seems to have the ability to make a team win, and yet no one knows quite how he does it. Battier's job is to guard the most talented opponents, shutting down attacking geniuses such as Kobe Bryant. So you would expect Battier to have poor numbers as a shooter and dribbler. Much more interestingly, he doesn't even have outstanding stats using the standard defensive metric of rebounds. Nor is Battier universally highly rated by his peers.

Lewis describes the situation as a basketball mystery. "A player is widely regarded inside the NBA as, at best, a replaceable cog in a machine driven by superstars. And yet every team he has ever played on has acquired some magical ability to win." How quickly we fall back on irrational terminology: the "magic Battier" or the "lucky charm Bresnan". In fact, Lewis goes on to deconstruct the magic in the most logical terms:

"Battier's game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his team-mates get better, often a lot better, and his opponents get worse - often a lot worse. He may not grab huge numbers of rebounds, but he has an uncanny ability to improve his team-mates' rebounding. He doesn't shoot much, but when he does, he takes only the most efficient shots. He also has a knack for getting the ball to team-mates who are in a position to do the same, and he commits few turnovers."

One of the coaches at the Rockets calls Battier "lego" because "when he's on the court, all the pieces start to fit together". It is a standard misconception that team selection is about picking the best all-round players and only the best players. In fact, the art of selection is picking the right team, which is an organic entity with its own unique personality. The Houston Rockets are committed to analysing how the five players on any basketball team are far more than the sum of their parts. As Lewis puts it: "The Rockets devote a lot of energy to untangling subtle interactions among the team's elements."

The Rockets' coaches use a statistic called the "plus-minus", which measures what happens to the score when any given player is on the court. There are risks with over-reliance on the plus-minus, of course. In football, the very best players are often rested for easy games - so they miss on easy "pluses". And the plus-minus flatters players who are dragged up by brilliance that surrounds them. A basketball player who finds himself on the same team with the world's four best players, and who plays only when they do, will benefit from an artificially inflated plus-minus.

Analysts need to watch out for these potential pitfalls. But the brilliance of the plus-minus, unlike other statistical measures, is that it asks absolutely the right question - how much does a player really help the team? In basketball, a good player might be a plus three -- that is, his team averages three points more per game than its opponent when he is on the floor. Shane Battier is plus six.

	It is a standard misconception that team selection is about picking the best all-round players and only the best players. In fact, the art of selection is picking the right team, which is an organic entity with its own unique personality

There are Battiers in every sport. Arsenal fans will tell you how what a huge difference Mikel Arteta made to their efficiency and effectiveness last season. Arteta does not possess explosive pace or power. Nor does he quite have the ability to play the thrilling eye-catching pass that made his predecessor Cesc Fabregas so exciting to watch. But when Arteta is on the pitch, Arsenal possess shape, structure and - above all - common sense and leadership. Arteta brings class and poise to a team that has often lacked maturity. In the same vein, Chelsea fans can talk into the early hours about how Claude Makelele - the defensive midfielder who masterminded their glory days in the mid-2000s - is the most underrated player in Premiership history.

There are also inverse-Battiers: players who rack up good personal stats while actually damaging the team's win-loss percentage. Every cricketer has personal experience of selfish batsmen in one-day cricket who tend to score their runs when it is easy, and take up more balls than they should while they're doing so. The saddest thing about selfish players is how often weak coaches let them get away with it to the detriment of the team.

In some respects, Bresnan (for the time being, anyway) is not the ideal cricketing example of the Battier phenomenon - because after a stellar personal best at Trent Bridge last month, Bresnan is currently sitting on a very tidy set of personal statistics.

But for much of his career to date, Bresnan's contribution to the team has not been so easy to observe in the old-fashioned statistical measures. Fortunately, England employ the perfect man to explore how the value of some players is observed best in the win-loss column. Nathan Leamon, a former maths teacher and another unsung hero of the England set-up, spends his time developing new statistical tools to explain how cricket matches are won.

I doubt Bresnan is especially interested in obscure statistical analysis. But if his career continues on its current trajectory, he might end up as the accidental standard bearer for a more enlightened approach to selecting teams. How appropriate it would be if a new number - the plus-minus column - was added to every player's personal statistics. Perhaps the cricketing incarnation of the plus-minus metric should be given a special nickname: "the Bresnan".